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March 8, 2019

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Minister: Deficit-to-GDP ratio target for this year is realistic

CHINA’S deficit-to-GDP ratio target this year is proactive and realistic, the finance minister said yesterday.

The appropriate increase of the deficit-to-GDP ratio is an important decision of the Communist Party of China Central Committee and the State Council in line with economic and social development needs and sustainable fiscal development, Minister of Finance Liu Kun told a press conference on the sidelines of the annual legislative session in Beijing.

The move will enhance counter-cyclical adjustment to facilitate steady and rapid economic development. It will also accommodate tax and fee cuts on a larger scale, effectively lowering the burden on enterprises and energizing market entities, Liu said.

China has lifted its fiscal deficit target to 2.8 percent of GDP for this year, up 0.2 percentage points compared with last year.

Profits turned in by designated state-owned financial institutions and enterprises directly under the central government will be increased and local governments will be asked to put various funds and assets to good use through multiple avenues, expanding fiscal resources and allowing only a moderate deficit-to-GDP ratio increase, according to Liu.

The target is lower than the international 3 percent deficit warning line and those of the world’s major economies. The goal has factored in balance of fiscal revenue and spending and issuance of special-purpose debts and leaves room for macro regulation.

Unlike many other countries, China’s government debts are used mainly for effective investment instead of maintaining government operation and employee payment.

China will maintain sustainable fiscal development while enhancing tax and fee cuts and increasing spending in key areas, Liu added.

Local government debts

Talking about local government debts, the minister said risks are controllable and measures are being taken to prevent any increase in hidden debts.

The debt balances of both the central and local governments are within the legal limit.

The debt balance of local governments stood at 18.39 trillion yuan (US$2.7 trillion) at the end of last year, well below the official ceiling of 21 trillion yuan, official data showed.

The local debt ratio was 76.6 percent last year, significantly lower than the international warning line of 100-120 percent, while the total government debt ratio, taking into account central government debts, came in at 37 percent, also far from the alert level of 60 percent set by the European Union, Liu said.

“Given the figures, the government debt risks China faces are very low,” he said.

China is “very serious” about hidden debts, and has banned debt-raising practices of local governments that disregard solvency, Liu pointed out.

The ministry will take a sound approach in handling existing debts, strictly prevent illegal borrowing, and ensure that no systemic risk emerge.

Liu said China will stick to the principle that the central government will not offer bailout and the borrower is responsible for the debt.

A market and law-based mechanism has been established to deal with debt defaults, he said, calling the progress in reducing existing debts positive.

Liu also revealed that China’s overall income from its pension funds was greater than the expenditure, and that the funds were operating well.

“Nationwide, China can ensure that pensions are paid on time and in full.”

Last year, the income from corporate pension funds was 3.6 trillion yuan, while total expenditure stood at 3.2 trillion yuan, leaving a balance of 400 billion yuan, Liu revealed.

The cumulative balance of pension funds stood at 4.6 trillion yuan at the end of last year, he added.

In 2018, China established a system allowing central authorities to adjust corporate pension funds at the national level, Liu said, adding that 22 provinces have benefited from the arrangement.


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